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S&P 500 Dividends Poised for Years More Growth

Chart of the Day

July 17 (Bloomberg) -- Dividends paid by Standard & Poor’s 500 Index companies will climb almost as much in the next five years as they did during the last four, according to Rod Smyth, RiverFront Investment Group LLC’s chief investment strategist.

The comparison stems from Smyth’s estimate, made in a report three days ago, that payouts will rise 40 percent through 2019. He sees the growth occurring as companies earn more money and distribute a greater percentage of profit as dividends.

As the CHART OF THE DAY shows, S&P 500 dividends began advancing on a per-share basis in the second quarter of 2010, according to data compiled by Bloomberg. The increase through this year’s second quarter totaled about $16 a share. Payouts will have to go up another $15 to meet Smyth’s projection, as the chart shows.

“The case for dividend growth over the next five years is very compelling,” Smyth said in a video which accompanied the report. Investors seeking income may do better with stocks than bonds, the Richmond, Virgina-based strategist said.

Payouts for the S&P 500 are poised for 7 percent average annual growth in the next five years, barring “a significant earnings downturn,” Smyth wrote. He’s looking for profit to increase at a 5 percent pace.

A higher dividend payout ratio will offset the gap between the growth rates, the report said. He estimated that the ratio will be 40 percent of earnings in 2019. The current figure is about 35 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net Michael P. Regan, Jeremy Herron

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